Question

In: Finance

If the Company expands property, plant and equipment, it needs to borrow $800 million with an...

If the Company expands property, plant and equipment, it needs to borrow $800 million with an amortized (principal and interest) payment loan for 8-years at 3.00%. First, determine the annual payment (end of year) for the Company to fully repay the loan. Second, will the Company be able to deduct the full annual payment from Operating Profit and thereby reduce Income Before Income Taxes and taxes paid? Why?

Solutions

Expert Solution

Yearly payment (principal and interest)= $113.97 million

Details of calculation is given below.

Company will not be able to deduct the full annual payment from Operating Profit and thereby reduce Income Before Income Taxes and taxes paid. Because, the annual payments comprise of principal portion as well as interest. Out of this, interest alone is expense to be deducted from operating profit. Principal portion goes to reduce liability in balance sheet.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

A company needs to borrow $10 million for its working capital needs. Its considering the following...
A company needs to borrow $10 million for its working capital needs. Its considering the following three alternatives: Forgo cash discounts granted with the credit terms of 3/10; net 30 Borrow from the bank at 15% requiring a compensating balances 12% Issue commercial paper with 180 day maturity, at 12%. Cost of placement will $100,000. Which alternative would be the best?
A company needs to borrow $10 million for its working capital needs. Its considering the following...
A company needs to borrow $10 million for its working capital needs. Its considering the following three alternatives: Forgo cash discounts granted with the credit terms of 3/10; net 30 Borrow from the bank at 15% requiring a compensating balances 12% Issue commercial paper with 180 day maturity, at 12%. Cost of placement will $100,000. Which alternative would be the best?
Cash and equivalents $620 Operating assets 800 Property, plant, and equipment 3,200 Other assets 185 Total...
Cash and equivalents $620 Operating assets 800 Property, plant, and equipment 3,200 Other assets 185 Total assets $4,805 Current liabilities $1,040 Long-term debt 1,635 Other liabilities 195 Total liabilities $2,870 Paid in capital $415 Retained earnings 1,520 Total equity $1,935 Total liabilities and equity $4,805 Kiwi Fruit Company Income Statement Net sales $8,100 Cost of goods sold −6,700 Gross profit $1,400 Operating expense −400 Operating income $1,000 Other income 180 Net interest expense −200 Pretax income $980 Income tax −270...
Acquisition and Disposition of Property, Plant, and Equipment
BE10.7 (LO 3) Fielder Company obtained land by issuing 2,000 shares of its $10 par value common stock. The land was recently appraised at $85,000. The common stock is actively traded at $40 per share. Prepare the journal entry to record the acquisition of the land.BE10.8 (LO 3) Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction. Prepare the journal entry...
Acquisition and Disposition of Property, Plant, and Equipment
BE10.10 (LO 3) Mehta Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for offi ce equipment with an estimated fair value of $5,000. Mehta also paid $3,000 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)BE10.11 (LO 3) Cheng Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a...
Acquisition and Disposition of Property, Plant, and Equipment
BE10.14 (LO 5) Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2017. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2020. The machinery is sold on September 1, 2021, for $10,500. Prepare journal entries to (a) update depreciation for 2021 and (b) record the sale.E10.1 (LO 1) (Acquisition Costs of Realty) The following expenditures and receipts are related to land, land...
Acquisition and Disposition of Property, Plant, and Equipment
BE10.12 (LO 3) Slaton Corporation traded a used truck for a new truck. The used truck cost $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Slaton also made a cash payment of $33,000. Prepare Slaton’s entry to record the exchange. (The exchange has commercial substance.)BE10.13 (LO 4) Indicate which of the following costs should be expensed when incurred.a. $13,000 paid to rearrange and reinstall machinery.b. $200,000 paid for addition to building.c. $200 paid for tune-up...
Property, plant, and equipment, at cost: Land. . . . . . . . . ....
Property, plant, and equipment, at cost: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000 Buildings. . . . . . . . . . . . . . . . . . . . . . . . 700,000 Less: Accumulated depreciation. . . . . . (344,000) Equipment. . . . . . . . . . ....
A U.S. company needs to borrow $100 million for a period of seven years. It can...
A U.S. company needs to borrow $100 million for a period of seven years. It can issue dollar debt or yen debt. a. Suppose the company is an MNC with sales in the U.S. and inputs purchased in Japan. How should this affect its financing choice? b. Suppose the company is a multinational firm with sales in Japan and inputs that are primarily determined in dollars. How should this affect its financing choice?
A NZ firm needs to borrow NZD 10 million for one year. It can borrow at...
A NZ firm needs to borrow NZD 10 million for one year. It can borrow at a local bank at 6% per annum or it can issue bonds in Singapore denominated in Singapore dollars at 7% per annum. The current spot rate of Singapore dollar is 0.94 S$/NZ$ and the forecasted exchange rate in one year is 0.97 S$/NZ$. (a) Is it cheaper for the NZ firm to borrow in New Zealand or Singapore? Show your calculations to justify the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT